| | | Market Snapshot
| Dow | 42840.26 | +498.02 | (1.18%) | | Nasdaq | 19611.09 | +199.83 | (1.03%) | | SP 500 | 5930.55 | +63.77 | (1.09%) | | 10-yr Note | +5/32 | 4.52 |
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| | NYSE | Adv 1988 | Dec 714 | Vol 3.8 bln | | Nasdaq | Adv 2908 | Dec 1431 | Vol 11 bln |
Industry Watch
| Strong: Real Estate, Health Care, Financials, Information Technology, Industrials, Materials, Energy, Utilities |
| | Weak: -- |
Moving the Market
-- Above-average volume due to quarterly options/futures expiration
-- Rebound action after drop in rates and comments from Chicago Fed President Goolsbee (2025 FOMC voter) indicating he thinks rates "will come down a fair bit more"
-- Reacting to the PCE Prices, which didn't show improvement in the year-over-year readings for PCE and core-PCE inflation
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Closing Summary
20-Dec-24 16:25 ET
Dow +498.02 at 42840.26, Nasdaq +199.83 at 19611.09, S&P +63.77 at 5930.55
[BRIEFING.COM] The stock market bounced back today after sharp declines this week. The major indices all settled at least 1.0% higher on above-average volume on this quarterly options/futures expiration day. The market still registered sharp declines at the index level compared to last Friday's close. Losses range from 1.8% to 4.5% this week.
Today's positive price action was fueled by a drop in market rates, along with comments from Chicago Fed President Goolsbee (2025 FOMC voter) indicating he thinks rates "will come down a fair bit more." The 10-yr yield, which was as low as 4.48% earlier, settled five basis points lower than yesterday at 4.52%. The 2-yr yield dropped one basis point today to 4.31%.
Bonds and equities responded favorably to the release of the Personal Income and Spending Report for November. This morning's inflation readings didn't show any improvement, but importantly, the data was better than some had feared. The PCE Price Index rose to 2.4% on a year-over-year basis versus 2.3% in October, and core PCE was 2.8%, which was unchanged from October. Consensus estimates however, pegged them coming in at 2.5% and 2.9%, respectively.
Just about everything participated in upside moves in the stock market. All 11 S&P 500 sectors logged gains. Seven of the sectors climbed more than 1.0%, led by real estate (+1.8%), utilities (+1.5%), information technology (+1.5%), and financials (+1.4%).
23 of the 30 Dow components closed in the green led by NVIDIA (NVDA 134.70, +4.02, +3.1%) and UnitedHealth (UNH 500.13, +10.88, +2.2%). NIKE (NKE 76.94, -0.16, -0.2%) is among the DJIA component that closed lower after disappointing with its fiscal Q3 revenue guidance.
- Nasdaq Composite: +30.4% YTD
- S&P 500: +24.3% YTD
- Dow Jones Industrial Average: +13.7% YTD
- S&P Midcap 400: +12.3% YTD
- Russell 2000: +10.6% YTD
Reviewing today's economic data:
- Personal income increased 0.3% month-over-month in November (Briefing.com consensus 0.4%) following an upwardly revised 0.7% (from 0.6%) in October. Personal spending rose 0.4% month-over-month (Briefing.com consensus 0.5%) following a downwardly revised 0.3% increase (from 0.4%) in October. The PCE Price Index was up 0.1% month-over-month (Briefing.com consensus 0.2%); however, it ticked up to 2.4% year-over-year from 2.3% in October. The core-PCE Price Index, which excludes food and energy, also increased 0.1% month-over-month and held steady at 2.8% year-over-year.
- The key takeaway from the report is that there wasn't any improvement in the year-over-year readings for PCE and core-PCE inflation.
- The final University of Michigan Index of Consumer Sentiment for December held steady at 74.0 (Briefing.com consensus 74.2) from the preliminary reading. In the same period a year ago, the index stood at 69.7.
- The key takeaway from the report is the understanding that consumers are expecting future price increases for large purchases, which is driving a pickup in current buying conditions.
Looking ahead to Monday, market participants receive the December Consumer Confidence Index at 10:00 ET.
Stocks maintain gains, but drift ahead of the close
20-Dec-24 15:35 ET
Dow +487.56 at 42829.80, Nasdaq +177.44 at 19588.70, S&P +59.60 at 5926.38
[BRIEFING.COM] The stock market has slowly moved lower in the afternoon, many the major indices all trade up at least 1.0% still.
Looking ahead to next week, the NYSE will close at 1:00 p.m. ET and the Treasury market will close at 2:00 p.m. ET on Tuesday and markets will be closed Wednesday for Christmas Day.
Economic data next week includes the November Durable Orders report on Tuesday and the weekly jobless claims report on Thursday.
Treasury yields move slightly higher
20-Dec-24 15:00 ET
Dow +648.59 at 42990.83, Nasdaq +295.56 at 19706.82, S&P +86.40 at 5953.18
[BRIEFING.COM] The major indices trade off session highs.
Some political uncertainty has dissipated after House Speaker Mike Johnson said there will not be a government shutdown and the House will vote on a bill to fund government today, according to CNBC.
Treasury yields have moved slightly higher. The 10-yr yield, which was at 4.48% earlier, sits at 4.52% now.
S&P 500 gains, trails major averages despite standouts like Enphase, Palantir, and Humana
20-Dec-24 14:30 ET
Dow +724.38 at 43066.62, Nasdaq +324.37 at 19735.63, S&P +94.84 at 5961.62
[BRIEFING.COM] The S&P 500 (+1.62%) is higher by about 95 points today, yet remains in last place among the major average with more aggressive gains being had elsewhere.
Briefly, S&P 500 constituents Enphase Energy (ENPH 71.41, +5.61, +8.53%), Palantir Technologies (PLTR 79.61, +5.40, +7.28%), and Humana (HUM 251.44, +15.66, +6.64%) dot the top of the standings. ENPH caught an analyst upgrade to Mixed at OTR Global this morning, PLTR jumps despite a dearth of corporate news, and HUM gains after naming former Citi (C 69.82, +1.40, +2.05%) exec Japan Mehta as the company's Chief Information Officer.
Meanwhile, Old Dominion (ODFL 181.25, -6.49, -3.46%) is today's worst laggard amid news of FedEx (FDX 277.16, +1.28, +0.46%) LTL spin-off.
Gold rallies on Friday to $2,608 as dollar declines, but hawkish Fed drives weekly losses
20-Dec-24 14:00 ET
Dow +687.50 at 43029.74, Nasdaq +305.51 at 19716.77, S&P +88.55 at 5955.33
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+1.58%) is now in second place with about two hours to go on Friday.
Gold futures settled $37 higher (+1.4%) to $2,608.10/oz, ultimately down -1.1% this week; Friday gains were aided by dollar declines, but hawkish Fed cements weekly losses.
Meanwhile, the U.S. Dollar Index falls about -0.6% to $107.77.
Carnival is cruising higher after it wrapped up FY24 with impressive results (CCL)
Carnival (CCL +6%) wrapped up FY24 on a solid note. The cruise line operator reported a nice EPS beat for Q4 (Nov). It was not the double-digit EPS beats we saw in Q2 and Q3, but still was good upside. CCL swung to adjusted EPS of $0.14 from a $(0.07) loss in the year ago period. Perhaps more importantly, Carnival expects Q1 (Feb) EPS to be roughly breakeven while analysts were expecting a slight loss. The company did guide FY25 adjusted EPS to $1.70, which was below analyst expectations.
- Revenue rose 10.0% yr/yr to $5.94 bln, which was in-line. Adjusted EBITDA is a good metric to use given the huge depreciation generated by capital-intensive cruise ships. Adjusted EBITDA in Q4 jumped 29% yr/yr to a record $1.22 bln, which was ahead of the $1.14 bln prior guidance. Adjusted EBITDA guidance for Q1 is approx. $1.04 bln and for FY25 it is approx. $6.60 bln.
- For 2024, prices were up in all of its major brands and trades between mid-single digits to mid-teens. Furthermore, onboard spending levels actually accelerated sequentially each quarter throughout the year.
- Carnival said this was an incredibly strong finish to a record year. Revenues hit an all-time high driven by a strong demand environment. CCL was able to drive strong pricing in 2024 vs 2023 across its major cruise lines and trades. Looking ahead, CCL is actively working on an enhanced destination strategy to provide guests with yet another reason to take a cruise. CCL says 2025 is shaping up to be another banner year with yield growth expected to far outpace historical growth rates.
- Furthermore, even with less inventory available, booking volumes taken during Q4 for 2025 were higher than the prior year for a strong 2024, despite the traditionally slower period around the election. Booking volumes taken during Q4 for 2026 continued to break records, reflecting sustained demand even for further out sailings. CCL says its North American and European segments are each at their longest advanced booking windows on record.
Overall, this was a solid way to close out FY24 and CCL sounds pretty bullish about FY25. What stands out to us is that CCL was able to raise prices in FY24 and still attracted good demand. CCL also sounds excited about FY25 as booking trends point to another solid year. Briefing.com profiled CCL as an Investment Idea in 2021 as we figured cruises would be among the last modes of travel to recover following the pandemic. The recovery has taken longer than we expected, but it seems that the stock is finally reflecting a healthy demand environment.
Winnebago blazing a trail lower as sluggish RV demand persists, leading to downside Q1 results (WGO)
RV maker Winnebago (WGO) is blazing a trail lower as sluggish demand presented another roadblock in 1Q25, causing the company to fall short of EPS expectations for the third consecutive quarter, while revenue dove by 18% to $625.6 mln, also badly missing expectations. The drop in revenue marks the ninth straight yr/yr decline for WGO, illustrating how deep this downturn in the RV industry has been.
On that note, WGO is not alone in its struggles. The company's top and bottom-line miss comes on the heels of Thor Industries' (THO) downside Q1 results on December 1, followed by a mixed earnings report from specialty vehicle maker REV Group (REVG) on December 11 in which the company's RV segment reported a 26.5% plunge in sales.
- The story remained much the same in Q1 as WGO's dealer network kept a tight lid on orders due to soft retail demand. Persistently high interest rates and a cautious consumer that's shying away from big ticket purchases have created strong headwinds for the RV industry. As such, net revenue in the Towable RV segment dove by over 23% to $254.0 mln, driven by lower unit volume and a mix shift towards lower price-point models. Similarly, the Motorhome RV segment experienced a 19% drop in revenue to $271.7 mln, even as WGO ramped up discounts and allowances.
- A more promotional environment, combined with deleverage from lower yr/yr sales, resulted in a 290 bps drop in gross margin to 12.3%. This followed a 340 bps decrease in gross margin last quarter and there is likely little relief on the horizon -- at least in the near-term -- as WGO predicts that 2Q24 will remain challenged.
- With that said, there are some notable silver linings. For instance, the Marine segment stood out with revenue edging higher by about 4% to $90.5 mln, reflecting market share gains for the Barletta and Chris-Craft brands. Additionally, after 40 consecutive months of yr/yr declines for industry-wide RV shipments, October showed an increase of 2.4%, putting an end to a long and ugly losing streak.
- That encouraging data point was backed by some positive remarks from CEO Michael Happe, who stated that the company is seeing early signs of optimism driven by the conclusion of the election, improving inventory levels, and the anticipation of more interest rate cuts. Yesterday, though, those rate cut hopes were dampened a bit after the Fed indicated that it's inclined to hold off on more rate cuts as it assesses inflation trends.
Overall, the story hasn't changed too much for WGO or the broader RV industry as demand remains suppressed amid a persistently high-interest rate environment. From a longer-term perspective, the outlook is brighter since inventory levels across dealers are healthy, positioning WGO to generate stronger margins and earnings once this downturn reverses course.
NIKE's soft Q3 guidance offers reminder that comeback will be a marathon, not a sprint (NKE)
After NIKE (NKE) ran past analysts' muted 2Q25 expectations, but delivered soft Q3 revenue and gross margin guidance, shareholders were reminded that the company's turnaround will be more of a marathon than a sprint. CEO Elliott Hill, who returned to NKE on September 19 after retiring from the company in 2020, replacing John Donahoe, believes that the iconic sneaker and sports apparel maker lost its way, relying too much on a few key products: Air Force 1, Dunks, and Air Jordans. This, in turn, caused NKE to lose its innovative and competitive edge, while the company simultaneously shunned its retail partners as it steered customers towards its digital channel.
Correcting these missteps will take some time -- perhaps more than some market participants had initially expected -- and the next couple of quarters are looking rough as NKE works through stale inventory and mends relationships with its partners. On that note, the company guided for a double-digit revenue decline in Q3, badly missing expectations, with gross margin contracting by 300-350 bps.
- Another revenue decrease in Q3 would mark four consecutive quarters of yr/yr declines. In Q2, sales fell by 7.7% to $12.35 bln and the weakness was once again broad-based. Following an 11% drop last quarter, revenue in North America fell by 8%, further solidifying the notion that NKE is losing ground to On Holding (ONON), Deckers' (DECK) Hoka brand, and Skechers (SKX).
- Meanwhile, the situation in China isn't much better as macroeconomic headwinds continue to weigh on consumer spending. In that market, the sales decline accelerated to 8% from 3% in the preceding quarter.
- Despite NKE's prior emphasis on its DTC business, NIKE Direct Revenue still decreased by 13% to $5.0 bln, mainly driven by a 21% plunge in the digital channel. The primary issue relates back to NKE's reliance on those big three franchises and an associated lack of newness in other product areas. With little to excite consumers, NKE has been forced to become overly promotional to drive sales. In fact, Mr. Hill stated that about 50% of sales coming from the digital platform have been promotional sales.
- Accordingly, gross margin has been on a steady downhill slide, dipping by 100 bps in Q2 to 43.6%. More margin pressure is underway as NKE clears out old inventory in order to transition NIKE Digital into a full price business model. The company may also need to offer friendlier terms to its retail partners as it looks to regain shelf space at Foot Locker (FL) and Dick's Sporting Goods (DKS).
Heading into NKE's Q2 earnings report, expectations were low as the company struggles through one of the worst losing streaks in its history. Although the company managed to exceed those downbeat Q2 estimates, its weak Q3 guidance indicates that a comeback is still off in the distance. We do believe that Mr. Hill has the right playbook to execute the turnaround as he places a renewed focus on innovation, sports, and retail partnerships, but like in football, he can't erase a 21-point deficit in just one possession -- it's going to take a couple of quarters.
FedEx heads lower on mixed earnings/guidance; decision to separate Freight unit makes sense (FDX)
FedEx (FDX) reported mixed Q2 (Nov) earnings results last night. The company reported modest EPS upside while revs were a bit light. It also lowered FY25 adjusted EPS and revenue guidance to $19.00-20.00 and flat, respectively, on a more timid demand environment. The bigger news was that FDX said it would pursue a full separation of its FedEx Freight segment, creating a new publicly traded company within the next 18 months or so.
- Revenue declined 0.9% yr/yr to $21.97 bln. A soft global industrial economy, coupled with a competitive pricing environment, constrained FDX's results in Q2. Also, the Postal Service contract expiration on Sept 29 negatively affected two months of the quarter. FDX noted that US manufacturing PMI has indicated a contraction for 24 out of the past 25 months, the second longest downturn in US history.
- At its Federal Express unit, revenue was flat at $18.84 bln. FDX again saw increased demand for lower-yielding services. FedEx Freight segment revenue declined 11% yr/yr to $2.18 bln, driven by the soft industrial economy. Freight saw lower volumes, lower fuel surcharges, and lower weight per shipment. Also, comparisons were challenging because some customers won last year from the Yellow bankruptcy have since left in search of lower prices.
- Turning to volume trends by service, volumes were pressured, led by weakness in the US domestic market, partially offset by strong international growth. Across US domestic express services, volumes declined 1%, primarily due to weakness in the industrial economy. Ground volumes were down 1% as well, with the soft B2B environment weighing on ground commercial growth.
- Let's dig into the separation. We predicted this announcement might happen in our preview yesterday. FDX expects the separation will unlock significant value for shareholders by creating a pure-play LTL (less-than-truckload) company. In fact, FedEx Freight will be the largest carrier by revenue with the broadest network and the fastest transit times.
- As you can see above, Freight is much smaller than its core Federal Express segment. However, it is much more profitable, boasting segment operating margin of 14.3% in Q2 vs 5.6% for its Federal Express segment. The main negative with Freight is that revenue has been declining in recent quarters. The hope is that by the time the separation occurs, roughly by mid-2026, the freight market will be showing improvement.
Overall, the Q2 results/guidance were not great as FedEx struggles with a weak industrial economy. However, we like the idea to separate its Freight segment. We think FedEx Freight would likely garner a higher multiple and thereby unlock value if it would trade separately. Old Dominion (ODFL -6%) and XPO (XPO -4%) are the #2 and #4 LTL players. They trade at forward P/E's of 30.6x and 30.8x, respectively. FedEx trades at a forward P/E of 12.1x, so you have to think Freight's multiple is being stymied and would unlock value on its own. ODFL and XPO are both lower on the news that the #1 LTL player will soon be independent.
Cintas pulling back on earnings; had been in steady uptrend, but has stumbled (CTAS))
Cintas (CTAS -9%) is trading lower after reporting Q2 (Nov) earnings results this morning. The company has not missed on EPS in any quarter for the past five years and that was the case again in Q2. Revenues rose 7.8% yr/yr to a record $2.56 bln, which was in-line.
- However, Cintas clipped the high end of its FY25 organic revenue growth guidance a bit lower to +7.0-7.7% vs +7.0-8.1% prior guidance. We think this is the main source for the weakness today. However, Cintas still expects its first $10+ bln revenue year in FY25. Importantly, the company also raised full year EPS guidance for the second quarter in a row. The guidance increase was more than the Q2 beat, which implies upside EPS guidance for Q3-Q4.
- We like to keep an eye on Cintas because it is a window into how businesses see their near term prospects. Cintas is more than just the largest supplier of work uniforms in the US, it also gets more than half of its revenue from facility services (cleaning supplies, mops, first aid cabinets, fire extinguishers, alarms etc.) Cintas said it continued to experience strong demand in Q2 from businesses of all types and sizes.
- The company explained that virtually every business has a need Cintas is ready to meet. Whether it's a front door that needs a mat, a bathroom to service, exit lighting, fire extinguishers and sprinkler systems, first aid and safety needs etc. Cintas is also continually deepening its value proposition particularly within its four focused verticals: health care, hospitality, education and state and local government, which continued to perform well in Q2.
- Its Uniform Rental and Facility Services is the much larger segment of the two. Segment revenue rose 7.6% yr/yr to $1.99 bln. Other revenue, of which its First Aid segment accounts for a big part, rose 8.5% yr/yr to $571.4 mln.
- On the call, Cintas said that obtaining price increases has been more challenging than it was in Q1 (Aug) and earlier in calendar 2024. Price increases are coming down as inflation has come down. However, it still is able to obtain price increases. Nevertheless, Cintas said that new business is quite strong. Its retention rates are still at very attractive levels. Catalog spending is down a little bit but, overall, the business is functioning at a high level and the macro data seems pretty stable.
For much of the past year, this stock has been in an enviable uptrend without a lot of volatility. However, the stock has started to get tripped up in December. Shares of Cintas have been hit by two events this week. First, the Fed slowing its rate cut plans is not great for Cintas. Interest rates impact its customers plans to hire people and make investments. Second, this earnings report was decent, but not great. The main issue is that Cintas shaved a bit off the high end of its guidance for FY25 organic sales growth. That seems to have spooked investors a bit. Also, the comments about price increases being a bit harder to come by is having an impact as well.
The Big Picture
Last Updated: 20-Dec-24 14:01 ET | Archive
A 2025 Dogs of the Dow preview
2024 has been a great year for the stock market! As of this writing, the Nasdaq Composite is up 29.1%, the S&P 500 is up 23.0%, the Dow Jones Industrial Average is up 12.8%, the S&P Midcap 400 is up 11.7%, and the Russell 2000 is up 9.6%.
There has been a lot for investors to celebrate. Not everything, though, has come up roses. The Dogs of the Dow portfolio, for the most part, has been a real dog.
Stronger Together
The Dogs of the Dow are the ten Dow Jones Industrial Average components with the highest dividend yield. Sometimes those high dividend yields are the result of falling stock prices while other times they are simply a case of a stock having a high dividend yield.
It is a pretty simple process for investing in a Dogs of the Dow portfolio. After the market closes on the last day of the year, identify the ten highest-yielding Dow stocks, and then buy them at the start of the year investing an equal dollar amount in each of the stocks. Hold the stocks for a year and repeat the process at the end of the next year.
A variation of the strategy is to buy the five lowest-priced of the ten highest-yielding Dow stocks. These are called the "Small Dogs of the Dow." Again, one would purchase them at the start of the year, investing an equal dollar amount, and hold them for a year.
The table below provides a snapshot of the 2024 Dogs of the Dow. The Small Dogs of the Dow are in blue.
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| Walgreens* | WBA | 9.35 | -61.30 | | Verizon | VZ | 39.97 | 13.11 | | 3M | MMM | 127.13 | 43.89 | | Dow | DOW | 39.10 | -24.79 | | IBM | IBM | 223.92 | 41.86 | | Chevron | CVX | 141.15 | -1.34 | | Amgen | AMGN | 261.19 | -6.56 | | Coca-Cola | KO | 62.45 | 9.20 | | Cisco | CSCO | 57.63 | 17.78 | | Johnson & Johnson | JNJ | 143.58 | -5.48 |
StockSymbolPriceTotal Return (%)*Walgreens was replaced in the DJIA by Amazon.com on February 26, 2024
Source: FactSet
Less than Average
The website dogsofthedow.com offers an insightful look at the historical performance of the Dogs of the Dow and the process for carrying out this investment strategy.
Since 2000, the Dogs of the Dow has had an average annual total return of 8.7% and the Small Dogs of the Dow has had an average annual total return of 9.3%, according to dogsofthedow.com. The 2024 Dogs of the Dow portfolio, then, has been worse than average, with an average total return of 2.64% versus a total return of 24.77% for the S&P 500. The Small Dogs of the Dow portfolio has been far worse with an average total return of -9.20%.
Those showings don't show well for the strategy, which evokes the requisite investing reminder that past performance is no guarantee of future results.
For readers interested in this strategy, an early glimpse of a Dogs of the Dow portfolio for 2025 is included in the table below. The Small Dogs of the Dow are in blue.
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| Verizon | VZ | 39.97 | 6.73 | | Chevron | CVX | 141.15 | 4.53 | | Amgen | AMGN | 261.19 | 3.68 | | Johnson & Johnson | JNJ | 143.58 | 3.43 | | Merck | MRK | 99.52 | 3.29 | | Coca-Cola | KO | 62.45 | 3.09 | | IBM | IBM | 223.92 | 3.03 | | 3M | MMM | 127.13 | 2.88 | | Cisco | CSCO | 57.63 | 2.78 | | Procter & Gamble | PG | 169.19 | 2.38 |
StockSymbolPriceDividend Yield (%)Source: FactSet
Happy holidays!
-- Patrick J. O'Hare, Briefing.com
(Editor's Note: the next installment of The Big Picture will be the Year in Review on December 31) |
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